The Potential Impact of the Japan Disaster – an Update

Chemical companies, Consumer demand, Economic growth, Futures trading

Japan2.pngSadly, the blog needs to update its March 16 post, which analysed the potential impact of the Japan disaster. Earlier hopes of a quick end to the problems have proved false:•250000 people are now in refugee accommodation•The death toll is still rising, and is likely to reach at least 18000•The head of the International Atomic Energy Agency says we are “still far from the end of the accident” at the Fukushima Daiichi nuclear plant.

………..

Some in financial markets seem to regard current events as a ‘buying opportunity’. But the blog disagrees:•Japan is the world’s 3rd largest economy, and its electronics industry powers much of the equipment we now take for granted in our personal and working lives•Container shipping companies including Hapag-Lloyd and OOCL have stopped calling at Tokyo and Yokohama•Radiation was found on a Mitsui OSK ship that had been 80 miles (128km) from the problem area•Europe’s auto suppliers association fears “the return to normal production levels may take months, and cost €bns of lost revenue“•Bosch, the world’s largest component company, says “it can’t predict whether it will be able to secure component supplies beyond the end of this week”.As the Wall Street Journal map above shows, the US has now set a much wider evacuation zone (red dots) than the Japanese government (black dots). The US Navy was told Friday to stay 100 nautical miles away from the Fukushima plant, and yesterday the US embassy began handing out potassium iodide tablets in Tokyo.And, of course, the problem of rolling electricity cutbacks across Japan continues. People have cut down heating, and train services have been cancelled, to try and conserve power. But damaged refineries and wrecked power stations cannot be replaced quickly. Whilst European and Asian diesel fuel prices have jumped 20% as a result of the crisis.

………..

In terms of the Scenarios outlined on March 16, it now seems unlikely that we are going to see a Short-term Recovery Scenario. This has potentially very serious implications for industry:•Many companies operate within extended global supply chains. It is therefore not easy to determine what components might be impacted. China, for example, is often the final assembler of goods for the West, but Japan is the key supplier in terms of the critical components.•Some companies, such as Hewlett Packard and GM, have been well aware of the risks since the disaster began. But many may have been lulled into complacency by official statements. •Japan pioneered the Just-In-Time approach to manufacturing. No shortages of critical components have yet been reported, but they may well now start to occur, as current inventories are exhausted.Companies therefore need to quickly establish high-level Action Teams, reporting to senior management. Their remit should be to understand the implications of a move into either the Medium-term Rebuilding or (hopefully never to be needed) the Long-term Damage Scenarios. We can, of course, all hope that a quick solution to current problems may be found. But in today’s increasingly uncertain world, Boards will know that hope is not a strategy, or a sensible contingency plan.

PREVIOUS POST

Uncertainty builds around the world

26/03/2011

Sadly, the blog needs to update its March 16 post, which analysed the potential ...

Learn more
NEXT POST

Facts of the week

28/03/2011

Sadly, the blog needs to update its March 16 post, which analysed the potential ...

Learn more
More posts
CEOs need new business models amid downturn
14/01/2019

Many indicators are now pointing towards a global downturn in the economy, along with paradigm shif...

Read
Chart of the Year – China’s shadow banking collapse means deflation may be round the corner
16/12/2018

Last year it was Bitcoin, in 2016 it was the near-doubling in US 10-year interest rates, and in 2015...

Read
BASF’s second profit warning highlights scale of the downturn now underway
09/12/2018

The chemical industry is easily the best leading indicator for the global economy.  And thanks to K...

Read
Chemistry & the Economy: 2019 Outlook
04/12/2018

There will be no shortage of important topics to discuss on Thursday, at my regular Chemistry and th...

Read
Brexit moves from ‘Snakes and Ladders’ to cricket
02/12/2018

The Brexit debate had appeared to be a simple game of Snakes & Ladders till now.  The Leave cam...

Read
Asian downturn worsens, bringing global recession nearer
25/11/2018

The chemical industry is the best leading indicator for the global economy.  And my visit to Singap...

Read
Your ‘A-Z Guide’ to the Brexit Negotiations
18/11/2018

“The UK is now facing a national crisis”, according to Margaret Thatcher’s former ...

Read
Global smartphone recession confirms consumer downturn
11/11/2018

Q3 smartphone sales data show the global market in recession, as Strategy Analytics confirmed: “Th...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more